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Goodwill and Intangible Assets, Net
 9 Months Ended
Sep. 30, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets, Net Goodwill and Intangible Assets, Net
Changes in goodwill consisted of the following (in thousands):
Balance as of December 31, 2022$15,852 
Apex acquisition50,648 
Balance as of September 30, 2023$66,500 
During the period ended September 30, 2023, we concluded it was more likely than not the fair value of our equity was lower than book basis as of September 30, 2023, and our indefinite-lived intangible assets, long-lived assets and goodwill should be evaluated for impairment as of September 30, 2023. Our conclusion was based on several determinative factors, including the sustained decline in our market capitalization as of September 30, 2023 and failure to achieve our projected growth. We conducted a quantitative test for our various long-lived asset groups, indefinite lived intangible assets and single reporting unit's goodwill. We concluded in the quantitative assessment that the fair value of our loyalty-related customer relationships and developed technology and our trademark/trade name indefinite-lived intangible asset fell below their carrying values as of September 30, 2023 and recorded impairments of $16.6 million, $3.1 million and $3.7 million, respectively. No impairment of the recently acquired Apex Crypto customer-relationships or developed technology was indicated. No goodwill impairment was indicated by the quantitative assessment and no goodwill impairment charges have been recognized in the nine months ended September 30, 2023.
Our goodwill impairment analyses involved the use of a market approach and an income approach, with equal weighting given to both approaches. The market approach valuation was derived from metrics of publicly traded companies, which are Level 2 inputs. A significant judgment in using the market approach included the selection of comparable businesses with consideration of risk profiles, size, geography, and business operations. Significant assumptions used in the income approach included growth (revenue, earnings before interest, taxes, depreciation, and amortization ("EBITDA") and earnings before interest and taxes ("EBIT") margin, and terminal value) and discount rates. We used historical performance and management estimates of future performance to estimate margins and revenue growth rates. Our growth rates and margins are impacted significantly by our ability to grow crypto trading volumes and our ability to expand to international markets. The income approach utilized our projected cash flow estimates to determine fair value, which were unobservable, Level 3 inputs. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available. We developed our estimates using the best information available as of September 30, 2023 and in consultation with third party valuation specialists. We used discount rates that were intended to be commensurate with the risks and uncertainty inherent in our business. Assumptions used, such as forecasted growth rates, capital expenditures, and our cost of capital, were consistent with our internal projections and operating plans as of September 30, 2023.
Our quantitative impairment analysis for the loyalty-related customer relationships and developed technology intangible asset involved the use of a market approach which estimated the sale value of the asset group associated with the loyalty business. Significant judgments included the scope of the asset group and the hypothetical proceeds associated with the transaction, which are level 3 inputs.
Our impairment analysis for the trademark/trade name involved the use of a relief from royalty approach, which estimated the value of the stream of payments a market participant would pay to make use of the in-place trade name. Significant judgments in this analysis included forecasted revenue growth rates, the royalty rate and the discount rate.
The discount rate used in the valuations described above ranged from 13.5% (used in the loyalty asset group valuations) to 35% (used in the crypto services asset group valuations) The crypto services discount rate increased by approximately 400 basis points from the rate used in the Apex Crypto acquisition described in Note 4 due to the additional uncertainty around our international expansion. The discount rate used in the income approach in the goodwill quantitative test and the valuation of the trademark/tradename indefinite-lived intangible asset was a weighted average 25%.
During the period ended September 30, 2022, we concluded it was more likely than not the fair value of our equity was lower than book basis as of September 30, 2022, and our indefinite-lived intangible assets, long-lived assets and goodwill should be evaluated for impairment as of September 30, 2022. Our conclusion was based on several determinative factors, including the elongated timing for expected crypto product activations and the sustained decline in our market capitalization as of September 30, 2022.
After assessing the totality of circumstances and giving effect to the indefinite-lived intangible asset impairment described below, as of September 30, 2022 we concluded that the carrying value of our reporting unit exceeded its fair value and recorded a goodwill impairment of $1,389.9 million.
Our goodwill impairment analysis involved the use of a market approach and an income approach, with equal weighting given to both approaches. The market approach valuation was derived from metrics of publicly traded companies, which are Level 2 inputs. A significant judgment in using the market approach included the selection of comparable businesses with consideration of risk profiles, size, geography, and business operations. Significant assumptions used in the income approach included growth (revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings before interest and taxes (EBIT) margin, and terminal value) and discount rates. We used historical performance and management estimates of future performance to estimate margins and revenue growth rates. Our growth rates and margins are impacted significantly by our ability to grow loyalty redemption transactions, crypto trading volumes and subscription services. The income approach utilized our projected cash flow estimates to determine fair value, which were unobservable, Level 3 inputs. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available. We developed our estimates using the best information available as of September 30, 2022 and in consultation with third party valuation specialists. We used discount rates that were commensurate with the risks and uncertainty inherent in our business. Assumptions used, such as forecasted growth rates, capital expenditures, and our cost of capital, were consistent with our internal projections and operating plans as of September 30, 2022.
During the period ended September 30, 2022, we also concluded that the fair value of our licenses and trademark/trade name indefinite-lived intangible assets fell below their carrying values as of September 30, 2022 and recorded impairments of $131.3 million and $26.5 million, respectively.
Our impairment analysis for the licenses intangible asset involved the use of an income approach which estimated the value of the in-place licenses as compared to cash flows if the licenses had to be obtained at a delay. Significant judgments used in this analysis were consistent with the inputs used in the income approach for the goodwill impairment analysis and the assumed time to obtain the licenses.
Our impairment analysis for the trademark/trade name involved the use of a relief from royalty approach, which estimated the value of the stream of payments a market participant would pay to make use of the in-place trade name. Significant judgments in this analysis included forecasted revenue growth rates and the royalty rate.
The discount rate used in the valuations described above was 15.5%, which was 400 basis points higher than the discount rate assumed in the valuation of these intangibles for the VIH Business Combination. The higher discount rate reflected the higher risk-free rate and beta observed as of September 30, 2022 as compared to the October 15, 2021 VIH Business Combination valuation date.
Our quantitative analysis of long-lived assets involved a comparison of undiscounted cash flows against the carrying value of the related assets which included finite-lived intangible assets and property, plant, and equipment. We concluded no impairment existed for the long-lived assets as of September 30, 2022. Significant judgments in this analysis were consistent with the inputs used in the income approach for the goodwill impairment analysis.
Intangible assets consisted of the following (in thousands):
September 30, 2023
Weighted Average Useful Life (in years)Gross Carrying AmountAccumulated Amortization
Impairment
Net Carrying Amount
LicensesIndefinite$611 $— $— $611 
Trademarks / trade namesIndefinite8,000 — (3,700)4,300 
Technology518,360 (5,558)(3,069)9,733 
Customer relationships8.455,170 (11,520)(16,556)27,094 
Total$82,141 $(17,078)$(23,325)$41,738 
December 31, 2022
Weighted Average Useful Life (in years)Gross Carrying AmountAccumulated AmortizationImpairmentNet Carrying Amount
LicensesIndefinite$241,320 $— $(241,320)$— 
Trademarks / trade namesIndefinite39,470 — (31,470)8,000 
Technology4.267,310 (19,605)(38,035)9,670 
Customer relationships844,970 (6,807)— 38,163 
Total$393,070 $(26,412)$(310,825)$55,833 
Amortization of intangible assets for the three and nine months ended September 30, 2023 was $2.6 million and $7.2 million, respectively, and is included in “Depreciation and amortization” in the statements of operations. Amortization of intangible assets for the three and nine months ended September 30, 2022 was $5.5 million and $16.3 million, respectively, and is included in “Depreciation and amortization” in the statements of operations.
Estimated future amortization for definite-lived intangible assets as of September 30, 2023 was as follows (in thousands):
September 30, 2023
Remainder of 2023$1,654 
20246,581 
20256,564 
20266,234 
20275,021 
Thereafter10,773 
Total$36,827 
Intangible assets include crypto we own, which are accounted for as indefinite-lived intangible assets and are initially measured at cost (under a first-in, first-out basis) under the guidance in ASC 350 Intangibles - Goodwill and Other. These assets are not amortized, but assessed for impairment continually given the volatility of markets for these assets. Impairment exists when the carrying amount exceeds its fair value. The fair value of crypto is determined as the lowest price of executed transactions during the measurement or holding period using the quoted price of the crypto in our principal market. The carrying amount of a crypto asset after its impairment becomes its new cost basis. Impairment losses are not reversible or recoverable and are included in Crypto Costs in the consolidated statement of operations. Impairment losses were not material to the three or nine months ended September 30, 2023. Our owned crypto are typically liquidated on a daily basis during the fulfillment of customer orders and settlement with our liquidity providers. We classify cash flows from crypto within cash flows from operating activities.